Background: The People’s Republic of China was founded in 1949 by the Chinese Communist Party (CCP). The CCP chairman, Mao Zedong, then led the country for nearly three decades. After coming to power in 1978, two years after Mao’s death, Deng Xiaoping introduced economic reforms. From 1989 to 2002 Jiang Zemin presided over a more collective leadership—a trend strengthened under his successor, Hu Jintao, but weakened since 2012 under the current CCP general secretary, Xi Jinping; Mr Xi has cultivated a more centralised and authoritarian style of leadership. The scrapping in March 2018 of a ten-year constitutional term limit on the office of the presidency indicated that Mr Xi intends to stay in power beyond 2023, in a break with the recent tradition of once-a-decade leadership transitions.

Political structure: The CCP dominates the government. Mr Xi is general secretary of the CCP and chairman of the Central Military Commission, which controls the armed forces. Li Keqiang leads the government as premier, while Mr Xi is state president. The CCP politburo standing committee is China’s main decision-making body. The National People’s Congress is the (largely rubber-stamp) legislature. The Chinese People’s Political Consultative Conference, a prominent advisory body, contains representatives of political, social and religious groups. There is no formal political opposition to the CCP.

Policy issues: Mr Xi's administration seeks sustainable growth alongside enduring CCP political control. The president has signalled a gradual shift in focus away from GDP targeting (likely to be formalised only after 2020) in favour of social issues such as addressing environmental degradation, corruption and wealth inequality. His administration is focused in the near term on curbing financial risk, reducing pollution and eliminating rural poverty. Planned reforms in the critical state-owned-enterprise sector are conservative in scope and progress on market liberalisation has stalled despite periodic government commitments. Mr Xi seeks an expanded international role for China, highlighted by the Belt and Road Initiative, which will raise Chinese investment in developing countries, and ambitious plans for military development.

Taxation: The standard rate of corporate income tax is 25%. China has a progressive income tax system, with marginal rates as high as 45%, but tax evasion is rife. Indirect tax is the main source of tax revenue, but the burden will be increasingly shifted to forms of direct taxation, including on personal income, as the government seeks to address inequality concerns.

Foreign trade: China’s trade surplus (in balance-of-payments terms) declined to US$476.1bn in 2017, from US$488.9bn in 2016. Exports stood at US$2.2trn in 2017, while imports were worth around US$1.7trn.